We have produced a chart pack showing the growth trends for online retail in Australia. It is in double-digit growth again after a pause in the 2023 calendar year. The growth is strongest for those with the biggest presence online – supermarkets, Amazon, Temu and Shein are all growing rapidly. While online is growing fast, it is happening with a stronger emphasis on profitability than five years ago. We expect retailers with a stronger online presence to have faster sales growth. However, the medium-term risk remains margin dilution for incumbent bricks & mortar retailers as the online sales may not be incremental.

Amazon recently sent a letter to a number vendors on its first-party (1P) platform informing them they would move to third-party (3P). What’s the change and why?  Under 1P, Amazon takes the inventory and price risk. Under 3P, the vendor (brand owner) takes these risks. Australian retail profit margins are generally higher than five years ago with gross margins better than feared. In our view, a key reason is that online retailers are less aggressive on price. Amazon’s shift is a good example of the shift in mindset. We expect retailers to sustain higher gross margins. The problem is their sales growth may remain underwhelming relative to operating cost growth.

Amazon’s latest Australian accounts show its market share gains are accelerating. In 2023, we calculate the online retailer had $5.8 billion in gross transaction value (GTV), which would account for one in $10 of all online spending by Australians. It could reach $10 billion in GTV over the next three years. While Amazon is winning share, we find that it is doing so rationally on price.